Will the UN's forest protection dream turn into a nightmare?

High hopes are pinned on an international plan to protect forests. But doubts remain over whether the Reducing Emissions from Deforestation and Degradation project, known as Redd, will actually reduce deforestation and carbon emissions

It could be the cheapest way to save the planet from climate change. Western governments and corporations want to shut down a major source of carbon dioxide emissions by paying the people who destroy forests to desist. But the dream could turn into a nightmare, in which Western polluters use their carbon credits to evade cutting emissions at home, while the promised benefit to the atmosphere is lost in a mire of conflict and corruption.

The plan is called REDD, for Reducing Emissions from Deforestation and Forest Degradation. It has backing from big oil and forest tribes, the World Bank, and blue-chip environment groups like the Nature Conservancy. Right now, REDD looks to be the only positive outcome likely to emerge from this December's Cancun climate conference, the successor to last year's failure in Copenhagen. If it happens, a new global business of carbon conservation in forests could soon be worth tens of billions of dollars a year.

The stakes are high. The destruction of tropical rainforests is responsible for an estimated 17 percent of global CO2 emissions — six times the amount of emissions from aircraft. REDD's backers say REDD could snuff out those emissions, sharply reducing deforestation by 2030. Already a range of pilot projects are up and running. But the warning signs about what could go wrong are flashing.

Take the Nature Conservancy's Noel Kempff Climate Action Project in Bolivia. This is a 14-year-old forest conservation project rebranded as a model for REDD. But Greenpeace last year called it a "carbon scam."

The $10 million project doubled the size of an existing national park to more than 800,000 hectares. It expelled loggers and installed forest rangers with funding from corporate sponsors, including the oil giant BP and America's largest coal burner, American Electric Power. The plan is to reward this corporate philanthropy with carbon credits equivalent to half the amount of carbon fixed in the forest. The rest go to the Bolivian government.

To date, carbon auditors say the project has prevented emissions of more than a million tons of CO2. One day, the partners may offset the carbon credits against their own emissions back home, or sell them in the carbon market likely to emerge under REDD.

The Noel Kempff project is highly regulated. Nobody doubts extra carbon is being kept in the forest. But there is a problem about its benefit to the atmosphere that can be summed up in one word: leakage. Some of the loggers expelled from the park simply put their chainsaws in the back of the pickup, drove down the road, and resumed cutting in the next forest. Since the project started, UN data show that rates of deforestation in Bolivia overall have gone up, not down, with a 4.4 percent rise between 2000 and 2005.

Timber pirates are everywhere, says Karl Bahler, a principal at Bahler Consulting and the former portfolio manager at Sustainable Forest Systems, which runs a green-minded logging project near the Noel Kempff forest. "The idea that governments in places like Bolivia can effectively police property rights just doesn't match up to the reality on the ground," says Bahler. So the bigger picture suggests that, however virtuous the Nature Conservancy's activities within the park, they may not be keeping carbon out of the air. Those carbon credits may represent hot air.

To prevent such leakage, many people say governments should have to ensure that national deforestation rates are curbed before anyone can claim any carbon credits for local projects. "National accounting is essential," says Kevin Conrad, the son of an American missionary in Papua New Guinea who has promoted REDD in his adopted country as the special envoy for climate change. Yet groups like the Nature Conservancy and Conservation International oppose the idea that credits should be awarded at the national level. They have lobbied hard at the UN that local projects should qualify, whatever goes on over the back fence.

Perhaps this is not surprising for organizations whose main activity is "on-the-ground" conservation. The Nature Conservancy accepts that "national-scale accounting is the ultimate goal." But it argues that "a transition period should be allowed in which subnational or project-scale activities can generate credits for sale," which will ensure "learning by doing." In UN negotiations, the Obama administration has argued the same position. But, even if leakage does not become endemic, the danger is that a few well-publicized cases could fatally undermine the whole REDD project.

REDD faces many other challenges if it is to become part of the solution to climate change, rather than part of the problem. They range from the scientific to the economic, legal, and political.

Satellites have transformed the ability of independent scientists to track deforestation, and ended reliance on questionable form-filling by national governments. But if scientists are to verify REDD, what exactly should they be measuring? A study last year by the Nairobi-based World Agroforestry Centre showed that in many places, farm woodlots and woody scrub are as important in capturing carbon as forests, but they are not part of the REDD definition.

There are other critical questions for the carbon counters. If countries are to be given carbon credits in return for cutting rates of deforestation, how do you measure the baseline rate? It can make a massive difference. In Brazil, for instance, deforestation rates doubled between 1990 and 2004, then fell by two-thirds in the next four years. So measuring changes in deforestation against the earlier, higher rate, would yield far greater compensation than if a more recent date were chosen.

On economics, there is a real danger that so many carbon credits will be awarded that they will end up flooding the existing carbon market and causing prices to crash. A Greenpeace study last year concluded that REDD could cut prices of carbon credits by 75 per cent. That would undermine the economics of a huge range of initiatives to reduce CO2 emissions, such as the development of renewable fuels.

Meanwhile, carbon accounting is likely to prove difficult and open to abuse. A carbon credit is more like an abstruse financial commodity than, say, a ton of wheat or coffee. In the jungles of the financial markets, the potential for carbon fraud is huge. Last August, several London City traders were arrested on suspicion of operating swindles involving carbon credits. They may be the first of many.

Is REDD fair? A looming problem is that REDD sets out to reward the bad boys of the forests if they mend their ways. The worse they are now, the more they stand to gain in the future. The bad guys are wise to this. On the Indonesian island of Sumatra, major companies responsible for pulping ancient rainforests now want to be rewarded with carbon credits for setting aside a small fraction of their huge landholdings for conservation.

Meanwhile the good guys — those who have conserved their forests all along — may get nothing. Nothing for Costa Rica, the only country in the tropics to have curbed rampant deforestation and increased its forest cover. Nothing for Guyana, which has kept its forests. And nothing for indigenous tribes who have looked after their forests for centuries.

Some say the rules should be changed to recognize long-time conservers. One carbon finance fund in London, Canopy Capital, has bought up the carbon-credit rights to the 370,000-hectare Iwokrama forest in Guyana in the hope of a payout one day. Such rewards may be fair. But if someone can gain carbon credits for protecting forests they never intended to destroy, that makes a mockery of the intention of REDD to compensate people who give up forest destruction. Paying people who have never destroyed their forests to ensure they carry on the good work may be valuable, but would not demonstrably reduce rates of deforestation or benefit the atmosphere. To pay them in carbon credits that could be sold to offset actual emissions would be potentially counterproductive in the fight against climate change.

REDD also raises afresh the issue of who owns the forests and is entitled to claim carbon credits. Some forest communities, such as the Surui tribe in the Rondonia region of the Brazilian Amazon, believe they can benefit from running their own carbon-sink forests. There are precedents. In part of the Juma rainforest in Brazil, the state government has given every household a credit card account into which it deposits $50 each month as a payment for keeping the forest intact.

But in Indonesia, the government owns the forests — and hence any carbon credits that they attract. Campaigners there complain that REDD pilot projects being set up by the Indonesian and Australian governments in Borneo — with support from the world's largest mining company, and would-be carbon offsetter, BHP-Billiton — are more likely to end up evicting forest dwellers to guarantee the protection of the forests than to enrich them.

This may already have happened in the Harapan forest in southern Sumatra, where locals say they have been thrown off their land as part of a carbon-sink project endorsed by the Prince Charles Rainforest Project and the conservation group Birdlife International. Birdlife says only illegal loggers have been expelled, but the locals say that isn't so. The only certainty is that the project seems to have created a lot of local antagonism.

We should not be too skeptical. It may be that a mixture of government concern and consumer pressure will soon outlaw pirate loggers, and that financiers can create carbon markets that will reward good behavior by landowners and governments alike. But, even in the days of satellite observations, it will remain hard to know exactly what is going on deep in the forest.